Barclays to announce new strategies against credit card abuse

by Elaine Frei

More stringent credit controls on Barclaycard are expected to be announced when its parent company, Barclays bank (LSE: BARC; NYSE: BCS; TYO: 8642), releases its annual report next week. Since the beginning of 2005 Barclaycard has cut some cardholders’ credit limits and rescinded their ability to borrow cash against their credit card. As many as 330,000 of Barclaycard’s 11 million customers have been affected by these actions. In addition, the card has been rejecting up to 50 percent of new card applicants and has more closely monitored the credit card use of its existing cardholders.

These initiatives come as the credit card company had to write off £1.57 billion in bad debts in 2006, 44 percent more than in 2005. Barclays and Barclaycard are not the only lenders with this problem. In the first half of 2006, UK banks collectively lost £3.3 billion in bad debts. This rising tide of defaults has put banks in the position of having to do something as the bad debts have begun to affect profits, especially as they have been criticized for making it much too easy for customers to go into debt. Many credit card providers have, in the past few years, raised credit limits without customers requesting it and sent cardholders blank checks that make it easier to draw on their credit.

In its efforts to more closely monitor credit activity, Barclaycard has begun to pay more attention to patterns of behavior by their cardholders, noting it when they take large cash advances on their credit limit, only make the minimum payment each month on their bill, or when they miss payments completely. It has also begun to access credit reports on problematic cardholders to see if they are accumulating debt aside from that on their Barclaycard account. When they reduce a problem cardholder’s credit limit, they warn the customer that they are doing so, but cash withdrawal privileges are halted without warning to the cardholder.